Taxes: Apple Inc. (AAPL) Is Right and Tim Cook Is a Strong Leader!

Tim Cook didn´t have it easy when testifying before the congress on issues regarding Apple Inc. (NASDAQ:AAPL)´s tax avoidance strategy. But he proved three things: Apple is doing the right thing, the tax system needs to be reformed, and Cook himself is a strong leader.

What?

Let´s be clear about this, nobody is saying that Apple Inc. (NASDAQ:AAPL) is doing anything illegal; the company is reducing its tax burden by operating 100% within the law. In a nutshell, what Apple Inc. (NASDAQ:AAPL) is doing is taking advantage of global tax loopholes by shifting profits to offshore units and saving billions of dollars in taxes. Such techniques are, in fact, quite popular among global corporations, especially in the tech industry.

According to Bloomberg, Google Inc (NASDAQ:GOOG) has used a pair of tax shelters known as the “Double Irish” and “Dutch Sandwich” that move foreign profits through Ireland and the Netherlands to Bermuda to avoid about $2 billion in income taxes a year. Google shifts profits into an Irish subsidiary that doesn’t pay taxes in Ireland, because it´s managed in Bermuda, where there is no corporate tax law.

Microsoft Corporation (NASDAQ:MSFT) is no stranger to these kinds of practices either, according to a report by the U.S. Senate Permanent Subcommittee on Investigations, the company reduced its 2011 tax bill by $2.43 billion by exploiting loopholes via a wide variety of foreign groups in tax havens like Ireland, Puerto Rico, and Singapore among other accounting tricks.

Many other big corporations are using similar strategies, and this is having important implications when it comes to cash management. These companies are keeping big amounts of money in untaxed offshore bank accounts; JPMorgan Chase & Co. (NYSE:JPM) estimated last year that Apple Inc. (NASDAQ:AAPL) was keeping 67% of its cash in foreign accounts, while Google Inc (NASDAQ:GOOG) kept 48% of its money outside the US and Microsoft Corporation (NASDAQ:MSFT) maintained in offshore accounts a whopping 89% of its cash reserves according to the report.

So what?

These maneuvers may not be illegal, but they do go against the spirit of the law. American companies like Apple Inc. (NASDAQ:AAPL), Google, and Microsoft – to name a few high profile names – are using loopholes to accumulate their profits offshore and avoid US taxes, and they are also keeping their cash outside the country for the same reasons.

This has raised some criticism by those who think that corporations have a patriotic duty to maximize taxes paid. However, this idea doesn´t make any sense: companies have a fiduciary duty to their shareholders, and that means doing their best effort to reduce their tax burden. Nothing illegal is going on here, it´s the job of the regulators and public authorities to build a better and more efficient tax system, while corporate executives need to worry about keeping taxes as low as possible.